Q2 2024 Rocky Brands Inc Earnings Call
Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Rocky Brands second quarter 2024 earnings conference call.
Operator: Thank you for standing by. Welcome to the Rocky Brands second quarter 2024 earnings conference call.
Operator: At this time, all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time. I would like to remind everyone that this conference call is being recorded, and I will now turn the conference over to Cody McAllister of ICR.
Speaker Change: At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions.
Speaker Change: If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time. I would like to remind everyone that this conference call is being recorded and I will now turn the conference over to Cody McAllister of ICR.
Cody Mcallister: Thank you and thanks to everyone for joining us today. Before we begin, please note that today's session, including the Q&A period, may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Such statements are based on information and assumptions available at this time and are subject to changes, risks, and uncertainties, which may cause actual results to differ materially. We assume no obligation to update such statements. For a complete discussion of the risks and uncertainties, please refer to today's press release and our report filed with the Securities and Exchange Commission, including our 10K for the year ended December 31st, 2020. And I'll now turn the conference over to Jason Brooks, Chief Executive Officer of Rocky Mountain.
Cody Mcallister: Thank you, and thanks to everyone for joining us today.
Cody Mcallister: Before we begin, please note that today's session, including the Q&A period, may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. For more information, please visit www.private-securities-litigation-reform-act.org.
Cody Mcallister: Such statements are based on information and assumptions available at this time and are subject to changes, risks, uncertainties, which may cause actual results to differ materially. We assume no obligation to update such statements.
Cody Mcallister: For a complete discussion of the risks and uncertainties, please refer to today's press release and our reports filed with the Securities and Exchange Commission, including our 10K for the year ended December 31st, 2023.
Cody Mcallister: And I'll now turn the conference over to Jason Brooks, Chief Executive Officer of Rocky Brands.
Jason S. Brooks: Thank you, Cody. With me on today's call is Tom Robertson, our Chief Operating Officer and Chief Financial Officer. After our prepared remarks, we will be happy to take any questions. Our second quarter results modestly exceeded our expectations as we continue to effectively navigate an unprecedented consumer environment. I'll share more detail momentarily, but similar to last quarter, Durango and Extra Tough led the way with double-digit year-over-year gains that offset some anticipated softness in other areas of our business.
Jason S. Brooks: Thank you, Cody. With me on today's call is Tom Robertson, our Chief Operating and Chief Financial Officer. After our prepared remarks, we will be happy to take any questions.
Jason S. Brooks: Our second quarter results modestly exceeded our expectations as we continue to effectively navigate an unprecedented consumer environment.
Speaker Change: I'll share more detail momentarily, but similar to last quarter, Durango and Extra Tough led the way with double-digit year-over-year gains that offset some anticipated softness in other areas of our business.
Jason S. Brooks: It is during less robust macroeconomic backdrops, like the present, that the benefits of our diversified brand portfolio stand out. Over the past several years, we have taken action to improve the company's financial profile in order to reinvest in growth and drive increased shareholder value. This is evidenced by higher gross margins and lower operating expenses, both of which contributed to the improvements in earnings. We took a significant step forward, further enhancing our earnings power during the second quarter with the refinancing of our debt and simplification of our capital structure.
Speaker Change: It is during a less robust macroeconomic backdrops, like the present, that this benefits of our diversified brand portfolio stands out.
Speaker Change: Over the past several years, we have taken action to improve the company's financial profile in order to reinvest in growth and drive increased shareholder value.
Speaker Change: This is evidenced by higher gross margins and lower operating expenses, both of which contribute to the improvements in earnings.
Speaker Change: We took a significant step forward.
Speaker Change: Further, enhancing our earnings power during the second quarter with the refinancing of our debt and simplification of our capital structure.
Jason S. Brooks: The new credit and term facility we signed with Bank of America in April is projected to generate approximately $4.4 million in annualized interest expense savings starting in 2025. Before I hand it over to Tom for a more detailed look at the financials, I'll take a few moments to walk through our second quarter brand and channel performance, starting with Durango.
Speaker Change: The new credit and term facility we signed with Bank of America in April is projected to generate approximately 4.4 million in annualized interest expense savings starting in 2025.
Speaker Change: Before I hand it over to Tom for more detailed looking at the financials, I'll take a few moments to walk through our second quarter brand and channel performance.
Jason S. Brooks: It continues to be one of the best-performing Western brands in the channel, delivering strong double-digit gains this quarter. We experienced continued strength in bookings across key accounts and farm and ranch partners, along with an acceleration in at-once business. The team is working to supply Shane with more of the brand's core in demand product, which, along with a positive response to the fall 2024 line, sets Durango up to build upon its strong first half over the remainder of the year.
Speaker Change: Starting with Durango, it continues to be one of the best performing Western brands in the whole channel, delivering strong double-digit gains this quarter. We experienced continued strength in bookings across key accounts and farm and ranch partners.
Speaker Change: along an acceleration in at-once business.
Speaker Change: The team is working to supply Shane with more of the brand's core in-demand product, which along with a positive response to the Fall 2024 line, sets Durango up to build upon its strong first half over the remainder of the year.
Jason S. Brooks: Like Durango, Xtra Tough maintained its strong momentum from early in the year and again outperformed expectations with a strong double-digit gain in Q2. Deliveries for Spring 2024 were very healthy, and we also received numerous replenishment orders for existing products as customers' appetite for Extra Tough continues to expand rapidly. Along with strong demand for its legacy outdoor products, Extra Tough Saw received positive reception for new colors and collaborations with the launch of its 2024 spring line.
Speaker Change: Like Durango, Extra Tough maintained its strong momentum from early in the year and again outperformed expectations with a strong double-digit gain in Q2.
Speaker Change: Deliveries for Spring 2024 were very healthy and we also field numerous replenishment orders for existing products as customers appetite for Extra Tough continues to expand rapidly.
Speaker Change: Along with strong demand for its legacy outdoor products, Extra Tough Saw is a positive reception for new colors and collaborations with the launch of its 2024 spring line.
Jason S. Brooks: The brand continues to see strong demand across a number of niche outdoor verticals, such as sport fishing and outdoor recreation, which is leading not only to increased sales but increased distribution with large retailers that position EscherTuff for continued success. Moving forward, the team remains focused on securing new bookings for its upcoming spring 2025 line and filling in replenishment aggressively this year while maintaining efforts to source sufficient inventory to fulfill the strong and growing demand for the brand. MUC had a good start to the quarter with the launch of its Spring 2024 line.
Speaker Change: The brand continues to see strong demand across a number of niche outdoor verticals.
Speaker Change: such as sport fishing and outdoor recreation that are leading not only in increased sales but increased distribution with large retailers that position EscherTuff for continued success.
Speaker Change: Moving forward, the team remains focused on securing new bookings for its upcoming spring 2025 line and filling in replenishment aggressively this year while maintaining efforts to source sufficient inventory to fulfill the strong and growing demand for the brand.
Speaker Change: MUC had a good start to the quarter with the launch of its Spring 2024 line. Unfortunately, the unfavorable spring weather patterns in several areas of the country led to slower retail turns.
Jason S. Brooks: Unfortunately, the unfavorable spring weather patterns in several areas of the country led to slower retail turns and, as a result, slower than anticipated restocks late in the quarter. However, retail partners are making progress in working through the inventory, and we anticipate getting back into a more normal restock cadence. Even with a lack of adequate weather to drive demand, we continue to see strong engagement with customers throughout our new website, enhanced marketing campaign highlighting the brand's heritage, and influencer partnerships that are amplifying visibility.
Speaker Change: and as a result, slower than anticipated restocks late in the quarter. Retail partners are making progress in working through the inventory, and we anticipate getting back into a more normal restock cadence.
Speaker Change: Even with a lack of adequate weather to drive demand, we continue to see strong engagement with customers throughout our new website, enhanced marketing campaign highlighting the brand's heritage.
Speaker Change: and influencer partnerships that are amplifying visibility.
Jason S. Brooks: As a result, we continue to add MUX accounts base and anticipate a rebound heading into the important fall season. Shifting to Georgia, it was a challenging second quarter for our work category, and the brand wasn't immune. Georgia continues to see more over-inventory pressure from smaller accounts.
Speaker Change: As a result, we continue to add a MUX account base and anticipate a rebound heading into the important fall season.
Speaker Change: Shifting to Georgia.
Georgia: It was a challenging second quarter for our work category, and the brand wasn't immune. Georgia continues to see more over-inventory pressure from smaller accounts.
Jason S. Brooks: However, the team was able to offset much of this pressure with mid-single-digit increases in our key accounts business, which has largely resumed its normal order cadence now that the COVID-related supply chain disruptions and the excess inventory purchases that follow are behind us. Similarly, Rocky work was also under pressure for much of Q2. However, momentum did build later in the quarter. Following a difficult April and May, we saw a notable uptick in June, up nicely versus a year ago.
Georgia: However, the team was able to offset much of this pressure with mid-single-digit increases with our Key Accounts business, which has largely resumed its normal order cadence despite the COVID-related supply chain disruptions and the excess inventory purchases that follow are behind us.
Georgia: Similarly, Rocky work was also under pressure for much of Q2. However, momentum did build later in the quarter.
Georgia: Following a difficult April to May, we saw a notable uptick with June , up nicely versus a year ago period. The late quarter rebound fueled by new and innovative product introductions in the last 12 months.
Jason S. Brooks: The late-quarter rebound, fueled by new and innovative product introductions in the last 12 months, leaves us optimistic that Rocky Work can continue to trend positively in the second half of the year. In fact, the brand continued to expand distribution with key national suppliers, as well as with catalog and direct-to-consumer sites this quarter, positioning the brand for a stronger reach going forward. Meanwhile, our work, Repositioning.
Georgia: leaves us optimistic.
Georgia: that Rocky Work can continue to trend positively in the second half of the year.
Georgia: In fact, the brand continued to expand distribution with key national suppliers.
Georgia: as well as with catalog and direct-to-consumer sites this quarter, positioning the brand for a stronger reach going forward.
Georgia: Meanwhile, our work.
Jason S. Brooks: Rocky Western's new value-driven product at more competitive price points continued in the second quarter. Unfortunately, it has taken longer than planned to move through the older, higher-priced inventory in the channel, which is impacting sell-in. That said, we are encouraged by the initial reception of our new, more affordable product and remain confident that our current strategy for Rocky Western will continue to gain traction with consumers and retailers over the coming quarters. With respect to Rocky Outdoor, last year's poor hunting season continues to weigh on the business, limiting the typical bulk shipments that typically occur in the second quarter ahead of the start of the new season this fall.
Georgia: Repositioning
Georgia: Rocky Western with new value-driven product at more competitive price points.
Georgia: continued in the second quarter.
Speaker Change: Unfortunately, it has taken longer than planned to move through the older, higher-priced inventory in the channel, which is impacting sell-in. That said, we are encouraged by the initial reception of our new, more affordable product, and remain confident that our current strategy for Rocky Western
Speaker Change: will continue to gain traction with consumers, retailers over the coming quarters.
Speaker Change: With respect to Rocky Outdoor, last year's poor hunting season continues to weigh on the business.
Speaker Change: limiting the typical bulk shipments that typically occur in the second quarter ahead of the start to the new season this fall.
Jason S. Brooks: While the hunting market overall remains challenging, we saw our non-hunting footwear, led by rugged casual styles, trend positively this quarter. This is helping to expand the brand's retail partner base and reach a broader consumer audience. Lastly, in wholesale, our commercial military duty segment was down in line with our expectations as we completed the 2023 Military Blanket Purchase Agreement in Q1. A delay in the military budget release for 2024 is also impacting our sales cadence versus last year.
Speaker Change: While the hunting market overall remains challenging, we saw our non-hunting footwear led by rugged casual styles trend positively this quarter. This is helping to expand the brand's retail partner base and reach a broader consumer audience.
Speaker Change: Lastly, in wholesale, our commercial military duty segment was down in line with our expectations as we completed the 2023 Military Blanket Purchase Agreement in Q1.
Speaker Change: A delay in the military budget release for 2024 is also impacting our sales cadence versus last year.
Jason S. Brooks: Solid gains in our duty fire collection and our postal business helped to partially offset the current military headwind. Shifting to retail, our branded e-commerce sites continue to trend positively. Double-digit revenue gains from our extra-tough Durango, Georgia, and Rocky sites led the way for our digital channel. We also utilized our dot-com business to move some overstock inventory in the quarter ahead of replenishing our large wholesale channel with many of our brand's best sellers. Lastly, our B2B Lehigh business was flat compared to the second quarter of 2023.
Speaker Change: Solid gains in our duty fire collection and our postal business helped to partially offset the current military headwinds.
Speaker Change: Shifting to retail, our branded e-commerce sites continue to trend nicely positive.
Speaker Change: Double-digit revenue gains from our extra-tough Durango, Georgia, and Rocky sites led the way for our digital channel.
Speaker Change: We also utilized our dot-com business to move some overstock inventory in the quarter ahead of restocking our large wholesale channel with many of our brand's best sellers.
Jason S. Brooks: However, key customer account spending improved in Q1, driven by a shift in focus to exiting account retention and growth. Last year, we shared that we implemented a significant realignment of our sales organization to improve our sales pipeline and provide greater ongoing account setup, rollout, and implementation. These changes are driving results, leading to an improved sales pipeline that positions Lehigh for a return to growth in the second half. Before I turn the call over to Tom, I wanted to thank the entire Rocky team for their continued hard work this quarter and a solid first half of the year.
Speaker Change: Lastly, our B2B Lehigh business was flat compared to the second quarter of 2023. However, key customer account spending improved for Q1.
Speaker Change: driven by a shift in focus to exiting account retention and growth. Last year we shared that we implemented a significant realignment of our sales organization to improve our sales pipeline.
Speaker Change: and provide greater continuing in account setup, rollout, and implementation. These changes are driving results, leading to an improved sales pipeline that positions Lehigh for a return to growth in the second half.
Speaker Change: Before I turn the call over to Tom, I wanted to thank the entire Rocky team for their continued hard work this quarter and a solid first half of the year.
Jason S. Brooks: While the operating environment remains a challenge, I am pleased to see our efforts with top-line expansion and expense management, along with our improved balance sheet, deliver positive results and begin to translate into value for our shareholders. As we look to the second half of 2024, I am cautiously optimistic that we can continue to build on our momentum and drive continued success. I'll now turn the call over to Tom to cover the financial details. Okay, Tom? Thanks, Jeff.
Thomas D. Robertson: While the operating environment remains a challenge, I am pleased to see our efforts with top-line expansion and expense management, along with our improved balance sheet, deliver positive results and begin to translate into value for our shareholders.
Thomas D. Robertson: As we look to the second half of 2024, I am cautiously optimistic that we can continue to build on our momentum and drive continued success.
Thomas D. Robertson: I'll now turn the call over to Tom to cover the financial details. Tom?
Thomas D. Robertson: Thanks, Jason. As Jason discussed, we are pleased with our results, as many of the drivers of our positive first quarter performance continued in the second quarter. Reported net sales for the second quarter were $98.3 million, down 1.6% compared to $99.8 million in the year-ago period. Excluding certain non-reoccurring sales from the year-ago period for sales related to the manufacturing of service products following the divestiture of the brand in March of 2023, our change to the distributor model in Canada in November of 2023, and temporarily elevated commercial military footwear demand throughout 2023, net sales increased 6.1% each year.
Thomas D. Robertson: Thanks, Jason. As Jason discussed, we are pleased with our results as many of the drivers of our positive first quarter performance continued in the second quarter.
Thomas D. Robertson: Reported net sales for the second quarter were 98.3 million dollars down 1.6 percent compared to 99.8 million dollars in a year ago period.
Thomas D. Robertson: excluding certain non-recurring sales from the year-ago period for sales related to the manufacturing of service product following the divestiture of the brand in March of 2023.
Thomas D. Robertson: our change to the distributor model in Canada in November of 2023, and temporarily elevated commercial military footwear demand throughout 2023. Net sales increased 6.1 percent each year.
Thomas D. Robertson: Excluding these non-recurring items, by segment, wholesale sales were up 2.3% to $68.3 million, retail sales increased 6.1% to $26.1 million, and contract manufacturing sales were up $3.5 million, up $2.6 million from last year. Turning to gross profit, for the second quarter, gross profit was $38 million, or 38.7% of net sales, compared to $37.6 million, or 37.6% of sales, in the same period The 110 basis point increase was driven by higher wholesale gross margins, as well as a higher percentage of retail net sales, which carry higher gross margins than our wholesale and contract manufacturing segments.
Thomas D. Robertson: Excluding these non-recurring items, by segment, wholesale sales were up 2.3% to $68.3 million, retail sales increased 6.1% to $26.1 million, and contract manufacturing sales were up 3.3% to $26.1 million.
Thomas D. Robertson: $3.5 million
Thomas D. Robertson: were $3.5 million up, $2.6 million from last year.
Thomas D. Robertson: Turning to gross profit. For the second quarter, gross profit was $38 million, or 38.7% of net sales, compared to $37.6 million, or 37.6% of sales, in the same period last year.
Thomas D. Robertson: The 110 basis point increase was driven by higher wholesale gross margins as well as higher percentage of retail net sales, which carry higher gross margins than our wholesale and contract manufacturing segments.
Thomas D. Robertson: Gross margins by segment were as follows: Wholesale, up 200 basis points to 37.2%, detail down 180 basis points to 46.9%, and contract manufacturing up 420 basis points to 9.6%. Operating expenses were $33.5 million, or 34.1% of net sales, in the second quarter of 2024 compared with $35.4 million, or 35.4% of net sales last year. On an adjusted basis, operating expenses were $32.8 million this year, or 33.4% of net sales, and $33.6 million, or 33.2% of net sales a year ago.
Thomas D. Robertson: Gross margins by segment were as follows. Wholesale, up 200 basis points to 37.2%.
Thomas D. Robertson: detail down 180 basis points to 46.9% and contract manufacturing up 420 basis points to 9.6%.
Thomas D. Robertson: Operating expenses were $33.5 million or 34.1% of net sales in the second quarter of 2024 compared with $35.4 million or 35.4% of net sales last year.
Thomas D. Robertson: On an adjusted basis, operating expenses were $32.8 million this year, or 33.4% of net sales, and $33.6 million, or 33.2% of net sales a year ago.
Thomas D. Robertson: Income from operations was $4.5 million or 4.6% of net sales compared to 2.2 million or 2.2% of net sales in the year-ago period. Adjusted operating income was $5.2 million or 5.3% of net sales compared with adjusted operating income of $5.7 million or 5.6% of net sales a year ago. For the second quarter of this year, interest expense was $6.1 million, inclusive of a $2.6 million one-time loan extinguishment charge compared with $5.6 million in the year-ago period on an adjusted basis, excluding the $2.6 million one-time term loan extinguishment charge.
Thomas D. Robertson: Income from operations was 4.5 million dollars or 4.6 percent of net sales compared to 2.2 million or 2.2 percent of net sales in a year ago period.
Thomas D. Robertson: Adjusted operating income was 5.2 million dollars or 5.3 percent of net sales compared with adjusted operating income of 5.7 dollars or 5.6 percent of net sales a year ago.
Thomas D. Robertson: For the second quarter of this year, interest expense was $6.1 million.
Thomas D. Robertson: inclusive of a 2.6 million dollar one-time loan extinguishment charge compared with 5.6 million dollars in a year ago period. On an adjusted basis excluding the 2.6 million dollar one-time term loan extinguishment charge
Thomas D. Robertson: Interest expense for the second quarter of 2024 was $3.5 million. The decrease in interest expense on an adjusted basis was driven by lower debt levels and interest rates resulting from the debt refinancing completed in April of this year, compared with the second quarter of 2023.
Thomas D. Robertson: Interest expense for the second quarter of 2024 was 3.5 million dollars.
Thomas D. Robertson: The decrease in interest expense on an adjusted basis was driven by lower debt levels and interest rates resulting from the debt refinancing completed in April of this year, compared with the second quarter of 2023.
Thomas D. Robertson: On a gap basis, we reported a net loss of $1.2 million, or $0.17 per diluted share, compared with a net loss of $2.7 million, or $0.37 per diluted share, in the second quarter of 2023. Adjusted net income for the second quarter of 2024 was $1.3 million, or $0.17 per diluted share, compared with break-even a year ago. Turning to our balance sheet, at the end of the second quarter, cash and cash equivalents stood at $4.1 million compared with $4.5 million at December 31st and $3.1 million a year ago. Total debt was $152.4 million, a decrease of 12% since December 31st and a decrease of 31.3% since June 30th of last year.
Thomas D. Robertson: On a gap basis, we reported a net loss of $1.2 million, or $0.17 per diluted share, compared with a net loss of $2.7 million, or $0.37 per diluted share, in the second quarter of 2023.
Thomas D. Robertson: Adjusted net income for the second quarter of 2024 was $1.3 million, or 17 cents per diluted share, compared with break-even a year ago.
Thomas D. Robertson: Turning to our balance sheet, at the end of the second quarter, cash and cash equivalents stood at $4.1 million compared with $4.5 million at December 31st and $3.1 million a year ago.
Thomas D. Robertson: Total debt was $152.4 million, a decrease of 12% since December 31st and a decrease of 31.3% since June 30th of last year.
Thomas D. Robertson: Inventories at the end of the second quarter were $175 million, up slightly compared to $169.2 million at the end of 2023 and down 20% compared to $218.3 million a year ago. With respect to our outlook, we still expect net sales to be toward the high end of our initial range of $450 to $460 million. The only thing that has changed since our Q1 call in late April is our view on gross margins.
Thomas D. Robertson: Inventories at the end of the second quarter were $175 million, up slightly compared to $169.2 million at the end of 2023, and down 20% compared to $218.3 million a year ago.
Thomas D. Robertson: With respect to our outlook, we still expect net sales to be toward the high end of our initial range of $450 to $460 million.
Thomas D. Robertson: The only thing that has changed since our Q1 call in late April is our view on gross margins.
Thomas D. Robertson: Due to the rising ocean freight rates and the volume shift within our wholesale channel to more of our larger key accounts, we now expect gross margins for 2024 to be slightly less than last year's 38.9% adjusted gross margin versus our prior guidance of a slight improvement. In terms of how this impacts the second half by quarter, it will depend on the timing of when the product sells, but we currently anticipate third quarter gross margins to decrease sequentially from Q2 gross margins before rebounding in the fourth quarter due to our mix of retail sales. That concludes our prepared remarks. Operator, we are now ready for questions.
Thomas D. Robertson: Due to the rising ocean freight rates,
Thomas D. Robertson: volume shift within our wholesale channel to more of our larger key accounts, we now expect gross margins for 2024 to be slightly less than last year's 38.9% adjusted gross margin versus our prior guidance of a slight improvement.
Thomas D. Robertson: In terms of how this impacts the second half by quarter will depend on the timing of when the product sells, but we currently anticipate third quarter gross margins to decrease sequentially from Q2 gross margins before rebounding in the fourth quarter due to our mix of retail sales.
Speaker Change: That concludes our prepared remarks. Operator, we are now ready for questions.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. The first question is from Janine Stichter from BTIG. Please go ahead.
Speaker Change: Thank you. We will now be conducting the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please, while we poll for questions.
Speaker Change: The first question is from Janine Stichter from BTIG. Please go ahead.
Janine Marie Hoffman Stichter: Hi, good afternoon. I want to ask you a bit about the supply chain. I think you talked about chasing inventory for Durango and Extra Tough. Maybe if you could just comment on the current state of the supply chain environment, your ability to chase, and kind of where we are in terms of bottlenecks or, you know, how the inventory flows stand. And then with that, I would just love a little bit more color on what you're seeing with ocean freight rates, how much you have locked in, and how much visibility you have there. Thank you.
Janine Marie Hoffman Stichter: Hi, good afternoon. I want to ask a bit about supply chain. I think you talked about
Janine Marie Hoffman Stichter: [inaudible]
Janine Marie Hoffman Stichter: And then with that, I would just love a little bit more color on what you're seeing with ocean freight rates, how much you have locked in and how much visibility you have there. Thank you.
Jason S. Brooks: Oh, yeah. Hey, Janine, thanks for being on the call. So, as we talk about chasing some inventory for Durango and Extra Tough, you know, the sales for those brands have exceeded our expectations a little bit in the first half of this year. We are seeing a little bit of delays from a supply chain perspective, but we feel, as you can see, with our inventory being up, we've got a lot of inventory coming our way and manufacturer-owned inventory to prepare us for Q3 and for Q4.
Janine Marie Hoffman Stichter: Oh yeah, hey Janine, thanks for being on the call.
Speaker Change: So as we talk about chasing some inventory for Durango and Extra Tough, the sales for those brands have exceeded our expectations a little bit in the first half of this year.
Speaker Change: We are seeing a little bit of delays from a supply chain perspective, but we feel, as you can see with our inventory being up, we've
Speaker Change: A lot of inventory coming our way, manufacturer-owned inventory, to prepare us for Q3 and for Q4. And so we're trying to catch some inventory on those two brands. But I think our inventory is well-positioned for the last half of this year.
Jason S. Brooks: And so, we're trying to catch up on some inventory on those two brands, but I think our inventory is well-positioned for the last half of this year. As it relates to container prices, we definitely have seen an increase, particularly in the month of June. They've gotten a little softer in the month of July so far, but we're monitoring that, and that's why we've been a little cautious with our margin guidance for the rest of the year.
Speaker Change: As it relates to container prices, we definitely have seen an increase, particularly in the month of June . They've gotten a little softer in the month of July so far, but we're monitoring that, and that's why we've been a little cautious with our margin guidance for the rest of the year.
Janine Marie Hoffman Stichter: All right, great. And then maybe just one more on the work brands.
Jason S. Brooks: It sounds like you're seeing some pressure there, but it's really more on the smaller accounts than the national accounts. Can you just comment on what's going on there? How much of it is the end consumer or general softness in the labor market versus the retailers that you're selling into? We'd just love to understand the dynamics there.
Speaker Change: All right, great. And then maybe just one more on the work brands. It sounds like you're seeing some pressure there, but it's really more on the smaller accounts than the national accounts. Can you just comment on what's going on there? How much of it is the end consumer or general softness in the work market versus the retailers that you're selling into? We'd just love to understand the dynamics there.
Jason S. Brooks: Yeah, absolutely. Thanks for the question, Janine. So what we are finding that the mom-and-pops, the independents, are just being a little bit more conservative. Our brands are still checking at retail. As we stated online, or on the call here too, you know, our key account business is actually doing significantly better.
Speaker Change: Yeah, absolutely. Thanks for the question, Janine. So, what we are finding that the, we call mom and pops, the independents,
Speaker Change: are just being a little bit more conservative. Our brands are still checking at retail. As we stated online, or on the call here too, you know, our key account business is actually doing.
Jason S. Brooks: And so the same kind of product is being sold. But what we believe is mom and pops are just being more conservative. So if they have three size 10s, and they sell one, they used to buy back into it. But now they're saying, I'm going to wait, and I'm going to get down to one pair or maybe even zero pairs, and then I'll buy back into it. So we're not concerned with brands at all.
Speaker Change: significantly better and so same kind of product it's being sold but what we believe is the mom-and-pops are just being more conservative so if they have three size 10s
Speaker Change: and they sell one, they used to buy back into it, but now they're saying, eh, I'm gonna wait and I'm gonna get down to one pair or maybe even zero pair and then I'll buy back into it.
Speaker Change: it.
Speaker Change: We're not concerned with the brands at all. We're just watching the retailers be very conservative. I think there's probably a little bit of play here with the election year also. We typically see the the mom-and-pops in particular.
Jason S. Brooks: We're just watching the retailers be very conservative. I think there's probably a little bit of play here with the election year also. We typically see mom and pops, in particular, get a little antsy around the year. So we think we think we're in good shape here. And we just got to kind of mull through the cautious.
Speaker Change: get a little antsy around the light here, so we think we're in good shape here and we just got to kind of mull through the cautiousness.
Speaker Change: All right, thanks so much.
Jonathan Robert Komp: The next question is from Jonathan Komp from Baird. Please go ahead.
Speaker Change: Thank you.
Speaker Change: The next question is from Jonathan Komp from Baird. Please go ahead.
Thomas D. Robertson: Yeah, hi, good afternoon. Thank you. Tom, I was hoping you could share a little more as you look to the back half about what type of underlying wholesale growth you're expecting and any more color on the order book support that you have sitting here currently.
Jonathan Robert Komp: Yeah, hi. Good afternoon. Thank you. Tom, I was hoping you could share a little more as you look to the back half.
Jonathan Robert Komp: What type of underlying wholesale growth you're expecting and any more color to the order book support that you have sitting here currently?
Thomas D. Robertson: Yeah, so I think for our wholesale business, you know, if you're looking at it from a non-recurring perspective, which is how we're viewing it this year with the changes to the Canadian distributor and the commercial military contracts, you know, we're targeting that mid-single-digit type of growth in wholesale and then probably a little bit more in that retail area, particularly in the e-commerce channel. So I would say, you know, we're still targeting that 450 to 460 range, the high end of the range, and so, you know, we're not really making any revisions upwards, but the key account growth is certainly going to help us get that mid-single digit growth that we talked about.
Speaker Change: Yeah, you know, I think for our wholesale business,
Speaker Change: You know, if you're looking at it from a non-recurring perspective, which is how we're viewing it this year, with the changes with the Canadian distributor and
Speaker Change: and the commercial military contracts. You know, we're targeting that mid-single-digit.
Speaker Change: type of growth and wholesale. And then probably...
Speaker Change: A little bit more in that retail area, particularly in the e-commerce channel.
Speaker Change: So I would say, you know, we're still targeting that 450 to 460 range, the high end of the range, and so, you know, we're not making really any provisions upwards, but the key account growth is certainly going to help us get to that mid-single digit growth that we talked about.
Thomas D. Robertson: Yeah, great. Thank you. And when you look at the Western category, specifically, either based on indications you see in your retail business or sell through that some of your key partners, what's your best sense of the health of that category? And how are you thinking about sort of the end market rate of sell through overall?
Speaker Change: Yeah, great. Thank you. And when you look at the Western category specifically, either based on indications you see in your retail business or
Speaker Change: sell through that some of your key partners. What's your best sense of the health of that category and how are you thinking about sort of the end market rate of sell-through overall?
Thomas D. Robertson: And that's a great question. You know, I think everybody is kind of aware of what's kind of happened in the Western business, or maybe even if you think about the country music business, which has really kind of spiked some stuff there. So we believe that we are seeing a little bit of that. Um, but not quite a lot.
Speaker Change: And there's a great question, you know, I think everybody is kind of aware
Speaker Change: What's kind of happened in the Western business, or maybe even if you think about the country music business has really kind of spiked some stuff there So we we believe that we are seeing a little bit of that
Thomas D. Robertson: You know, single digit kind of partial growth there from the popularity of what's going on with country music and Western boots. But our boots are still, you know, just really functional boots. And I think a lot of the people that are buying the other kind of boots, they're just going to Amazon looking for a cheap boot that looks like they want it to look. And so they're buying that. So I think it'll affect some of those kinds of brands more so, but I think the traditional brands like we are, I think we'll be okay. And, you know, right now, we don't see it slowing down this year.
Speaker Change: Thank you. Thank you.
Speaker Change: But not, not a lot, you know, single digit kind of.
Speaker Change: partial growth there from the the popularity of what's going on with country music and Western boots.
Speaker Change: But our boots are still, you know, just really functional boots. And I think a lot of the people that are buying...
Speaker Change: The other kind of boots, they're just going to Amazon looking for a cheap boot, and it looks like they want it to look, and so they're buying that. So I think it'll affect...
Speaker Change: Some of those kind of brands more so but I think the the traditional brands like we are I think we'll be okay and And you know right now. We don't see it slowing down this year And and we'll you know we'll keep a close eye on it for next year
Thomas D. Robertson: Yeah, I think, John, we have, you know, limited visibility into some of the sales, some of our resellers for our Western retail customers, and we're seeing, you know, we're seeing good sales through there. I think we're seeing, you know, a greater wholesale selling as people start to normalize their inventories a little bit as well.
Speaker Change: Yeah, I think, I think, John , we have, you know, we have limited visibility into some of the
Speaker Change: some of our Western retail customers. And we're seeing good sell through there. I think we're seeing a greater wholesale selling as people start to normalize their inventories a little bit as well. That's my take on it.
Thomas D. Robertson: Yeah, very helpful. Maybe maybe last one just related to the margin. Could you maybe quantify what type of increase you're seeing or building in from a freight perspective and the gross margin update and then, Is there any ability or willingness to pull back a little on SG&A? Are you still expecting to de-lever slightly based on investments in the incentive comp? Thanks again.
Speaker Change: Yeah, very helpful. Maybe last one just related to the margin. Could you maybe quantify what type of increase?
Speaker Change: You're seeing or building in from a from a freight perspective and the gross margin update and then
Speaker Change: Is there any ability or willingness to pull back a little on SG&A? Are you still expecting to de-lever slightly based on investments in the incentive comp? Thanks again.
Thomas D. Robertson: Yeah, so yeah, look, container prices. We saw container prices almost 2x what they were in June from May, right? But again, they've started to soften a little bit.
Speaker Change: Yeah, so, yeah, look.
Speaker Change: Container prices, we sell container prices.
Thomas D. Robertson: This is the ocean container pricing, which softened a little bit in July. So we're watching price, we're watching our peers. We haven't really seen anybody take pricing adjustments yet. If I were to kind of quantify it, probably a couple hundred basis points difference over LY just on an ocean crate piece of it.
Speaker Change: Almost 2x.
Speaker Change: what they were in June from May, right? Again, they've started to soften a little bit, this is the ocean. Soften a little bit in July . So we're watching price, we're watching our peers. We haven't really seen anybody take pricing adjustments yet.
Speaker Change: If I were to kind of quantify it, it would probably be a couple hundred basis points difference over LY, just on an ocean crate piece of it.
Thomas D. Robertson: But we're continuing to monitor that, and really, that'll depend on when and what product sells. As John, you know, you've followed us for a long time.
Speaker Change: But we're continuing to monitor that, and really that will depend on when and what product sells.
Speaker Change: you know.
Speaker Change: As John , you know, you've followed us a long time, we source a significant amount of our product from the Western Hemisphere, so we're getting a lot of product from Puerto Rico and from the Dominican Republic, so we'll probably be less impacted than some of our peers.
Thomas D. Robertson: We source a significant amount of our product from the Western Hemisphere. So we're getting a lot of product from Puerto Rico and from the Dominican Republic. So we'll probably be less impacted than some of our peers that source more predominantly or exclusively from Asia. But we're continuing to monitor it, and it'll certainly have an impact on us. We're going to try to mitigate that. As it relates to Unknown Attendee, Brendon Frey, Jeffrey Lick, Sarah OConnor, Rocky Brands, Ethan Saghi,
Speaker Change: that source more predominantly or exclusively from Asia, but we're continuing to monitor it and it'll certainly have an impact on us and we're going to try to mitigate that. As it relates to
Speaker Change: operating expenses, we are still trying to manage to the operating income goals we set at the beginning of the year. So, yeah, we are looking for areas where we can save some cost to try to maintain that operating margin. And so that's the goal for the next five months.
Speaker Change: Okay, thanks again.
Jason S. Brooks: There are no further questions at this time. I would like to turn the floor back over to Jason Brooks for closing comments.
Sean: Thanks, Sean.
Speaker Change: There are no further questions at this time. I would like to turn the floor back over to Jason Brooks for closing comments.
Jason S. Brooks: Great, thank you. I just want to reiterate one more time, a big thanks to the Rocky team. Everybody is working really hard to navigate this year, a complicated year. And I also want to say thanks to our shareholders and all their support. And we look forward to finishing out a good year in 2024 and continuing to grow these brands in the future. So thank you very much. This concludes today's teleconference. You may disconnect your lines at this time.
Jason S. Brooks: Great, thank you. I just want to reiterate one more time a big thanks to the Rocky team. Everybody is working really hard.
Jason S. Brooks: to navigate this year, a complicated year. And also wanna say thanks to our shareholders and all their support. And we look forward to finishing out a good year in 2024 and continuing to grow these brands in 25 in the future. So thank you very much.
Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Unknown Attendee: Unknown Attendee, Brian O'Brien, Jeffrey Lick, Sarah OConnor, Rocky Brands, Unknown Attendee, Brendon Frey, Jeffrey Lick, Sarah OConnor, Rocky Brands, Unknown Attendee, Brian O'Brien, Jeffrey Lick, Sarah OConnor, Rocky Brands, Unknown Attendee, Brendon Frey, Jeffrey Lick, Sarah OConnor, Rocky Brands, Unknown Attende
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